Thursday, October 9, 2008

Dow Jones In Perspective

Much has been made of the recent drop in the Dow Jones Industrial Average to below 10,000. The population is angry because their retirement accounts have taken a hit, and politicians are scrambling to find new ways to use taxpayer money to prop up the market. However, from a long term perspective this drop barely registers a blip. Below is a chart of the DJIA since 1896:


Despite what the chart shows, the drop in the Dow was very real. But every few years there comes a reminder for those who have forgotten: if you need that money soon, say within the next five years, the market is not where that money should be. Retirement accounts will recover over time (in fact, they barely dropped if you believe the chart), but for retirement money needed now, or tuition money needed next year, the market has never been the place to be!

This time, the market may be higher than it otherwise would be as taxpayers are helping to mitigate losses because of concerns for the broader economy. But next time, the government may not be able to afford it.

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